2022 Arrow Lecture by Marc Melitz

Tue, 28/06/202217:00

2022 Arrow Lecture: "Global Auto Part Sourcing: when more restrictive content rules backfire"

Delivered by Marc Melitz, Harvard University

28 June 2022 at 5pm

The public lecture will take place at the IIAS Lecture Hall, located in the Feldman Building of The Hebrew University of Jerusalem's Givat Ram campus. All are invited to attend.



Free trade agreements have rules of origin (ROO) that determine whether imports are eligible for tariff preferences. Those rules are intended to prevent importers from arbitraging differences in tariff rates across members in a free trade area.  But in practice, they are most often used as a tool to enact additional protectionist restrictions. A case in point is the 2020 revision to the North American Free Trade Agreement known as the USMCA, which drastically increased the rules of origins for the auto industry. The acknowledged purpose of the USMCA was to favor auto part production within the region. But rules of origin impede auto  makers from using their global supply chains efficiently leading to higher production costs.  Even setting aside those higher costs, they can also be counter-productive: when raised beyond a given level, they can induce producers to reduce the share of parts sourced within the free trade area.  The lecture will describe how overly strict content requirements can "backfire" and describe some evidence that the new North American trade agreement (USMCA) will likely generate those unintended negative consequences.